Impeaching the President, South Korea's stock market plunges! South Korea's Central Bank and Ministry of Finance step in to stabilize the market

South Korea’s political turmoil is having a significant negative impact on the capital markets, and Korean financial authorities are speaking out in hopes of stabilizing the financial markets.

Latest Developments in South Korea’s Political Situation

Following President Yoon Suk-yeol’s issuance and lifting of a state of emergency, high-level staff members including the Chief Secretary of the Presidential Office resigned collectively on the morning of the 4th. The Secretary of the Presidential Office, Jeong Jeon-seok, chaired a meeting of chief secretaries that morning, during which all senior staff expressed their intention to resign.

The ruling People Power Party leadership held a closed-door Supreme Committee meeting in the National Assembly on the 4th. According to media reports, the highest committee member Kim Jong-hyeok discussed options such as Yoon Suk-yeol’s resignation from the party and the resignation of the entire cabinet to hold him accountable for issuing the emergency decree.

The main opposition Democratic Party held an emergency parliamentary meeting on the 4th and issued a resolution calling for President Yoon Suk-yeol to resign immediately. The resolution emphasized that Yoon’s declaration of a state of emergency was unconstitutional and did not meet any necessary conditions for such a declaration. If he does not resign voluntarily, the Democratic Party will push for impeachment. The resolution also stated that declaring a state of emergency is invalid and a serious violation of the constitution and laws, constituting a severe act of internal chaos and sufficient grounds for impeachment.

According to Yonhap News Agency on December 4, six opposition parties in South Korea submitted articles of impeachment against Yoon Suk-yeol at 2:40 p.m. local time.

Financial Market Turmoil and Emergency Government Measures

On Wednesday, the Seoul Composite Index opened lower, falling as much as 2.3%. KB Financial Group’s stock dropped over 7%, Korea National Bank fell 6%, and Samsung Electronics and SK Hynix declined over 2%. By the close, the index had fallen 1.44%, and KOSDAQ declined 1.98%.

During last night’s U.S. stock trading session, the iShares MSCI Korea ETF (EWY), which tracks over 90 large and medium-sized Korean companies, plummeted 7% to a 52-week low, ending the day down 1.6%.

In the foreign exchange market, the won against the dollar fluctuated little, currently at 1 USD = 1,411.19 KRW. Since October, the won has been steadily depreciating against the dollar, from 1 USD = 1,302.94 KRW in early October, with a depreciation of over 4% so far.

Amid the financial market turbulence, several key Korean financial authorities, including the Bank of Korea, the Financial Services Commission, and the Ministry of Finance, urgently announced a series of rescue measures around the opening of the Korean stock market on Wednesday. The Korean government also stated it would provide “unlimited liquidity” if necessary to stabilize the market.

Kim Byoung-hwan, Chairman of the Financial Services Commission, said Korea would take all possible measures to prevent financial market tensions from spreading and ensure normal and stable market operation. Korea is prepared to immediately deploy measures such as a 100 trillion KRW (approximately $707 million) stock market stabilization fund. For the bond and capital markets, measures include maximizing the use of a 400 trillion KRW bond market stabilization fund and plans to purchase corporate bonds and commercial paper (CP). Regarding the foreign exchange market, Korea is preparing for additional margin risks caused by exchange rate rises. He also urged financial institutions to ensure sufficient foreign exchange liquidity and asked the Korea Exchange and other relevant departments to prevent behaviors that could disrupt the market.

The Bank of Korea held a special board meeting around 9 a.m. local time, announcing plans to sell two-year currency stabilization bonds at a yield of 2.690%, relax collateral policies in repurchase operations to ease any tension in the bond market, increase short-term liquidity, and take measures to stabilize the foreign exchange market if necessary.

In a subsequent statement, the Bank of Korea indicated it would provide any special loans needed to inject funds into the market. The statement read: “As announced jointly with the government, we will provide ample liquidity for a certain period until the financial and foreign exchange markets stabilize.”

However, Vice Governor Park Jong-woo stated at a press conference that during the special meeting today, officials did not discuss policy interest rates. Just last week, the Bank of Korea unexpectedly cut its benchmark rate by 25 basis points.

The Ministry of Finance also held a meeting on Wednesday morning. Finance Minister Choo Kyung-ho said Korea would establish a 24-hour team to monitor the markets and do everything possible to quickly resolve the economic uncertainties following this turmoil, aiming to keep the economy and people’s lives unaffected. Earlier that day, Minister Choo Kyung-ho promised that the government would take all necessary measures to stabilize the financial markets, including unlimited liquidity injections.

According to Yonhap News Agency, Korean financial regulators are prepared to allocate 10 trillion KRW (about 51.42 billion RMB) to the stock stabilization fund at any time.

Proofread by: Yang Lilin

(Editors: Guo Jiandong)

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